The major US markets, NASDAQ & NYSE, open at 9:30 a.m. EST (6:30 PST) and close at 4:00 p.m. EST (1:00 PST).
The list of U.S. holidays the market is closed on can vary slightly from year to year; the updated list can be found here.
Isthemarketopen.com has a very helpful image showing the main market hours based on your geographical location.
With the popularity of internet trading, anyone can now trade with the click of a button, leading to a demand for longer market hours. Even though there is an open and close, it is possible to trade in the market outside those times.
This can be done during pre-market hours (PM) and after hours (AH). The current (2021) hours are:
PM and AH trading were first introduced in the early 90s so that American markets could compete with foreign stock markets that were open longer. Since then, the times for PM and AH trading have changed multiple times due to the increased use of electronic trading (online brokers).
Note: Individual brokers can have slightly different PM and AH trading hours.
Trading during PM or AH is made possible because of electronic communications networks (ECNs). These networks match buyers and sellers, which allows the transaction to take place. Since MM generally do not participate in PM and AH trading, ECNs allow the trading to continue in their absence.
While PM & AH trading is allowed, it is only recommended for experienced traders. During these sessions, the trade volume, which is the number of shares that change hands, is significantly less than during main market hours.
We know that MMs add liquidity to the market, so without them, the market becomes a true auction (no middleman). If you are selling your stocks, the order will only go through if there is someone out there willing to buy at the exact price you are selling. This makes liquidity much lower and prices more volatile.
More volatility means higher risk. Prices can jump or drop much quicker, and spreads on stocks tend to be further apart (a sign of increased volatility). It is also possible for there to not be enough liquidity to cover your order, so it may go unfilled or only be partially filled. The image below illustrates the volatility of PM and AH trading sessions compared to main market hours:
In the above chart, we can see that the price increased $4 with about 1.7 million shares traded. Whereas in after hours (the light grey background area), we can see that the price decreased almost $8 with only 400,000 shares traded.
This type of chart is called a candlestick chart. Being able to read one is critical for every day trader. If you would like to learn more about it, check out our Day Trading 101 course!
Day traders that trade PM and AH will usually trade stocks associated with an important news release also referred to as a catalyst. Stocks with a catalyst can have very high trade volumes, sometimes even higher than during normal market hours.
This very high volume reduces the risk of trading outside main hours because it has plenty of liquidity. This will be explained much more in depth in the Day Trading 101 course.
Another important difference between trading PM and AH is that only certain types of orders are allowed. There are a variety of different orders, but we will only focus on the main ones in this course.
During main market hours, market orders, limit orders, stop (loss) orders, stop limit orders and trailing stop orders are allowed, but only limit orders are allowed during PM and AH.
A market order is executed immediately, no matter what the current price is.
Think of a limit order as the maximum or minimum price you are willing to buy or sell a stock for. The order does not execute until your specified price is reached.
Charles Schwab has a helpful illustration of limit buy and sell orders. Don’t worry if you confuse the different order types. I still confuse them sometimes too!
Let’s go over a few scenarios to understand these orders better. It is recommended that you try to determine the correct answer on your own before looking at it.
The order restriction for PM & AH trading is because the low level of trading volumes leads to high volatility and high spreads, which could lead to undesirable order executions.
Remember, a market order to buy is executed at the current ask price, and a market order to sell is executed at the current bid price.
The large spreads mean the bid/ask price could be very different from the current price, and many people would have orders filled at very different prices than they were expecting. Below are some examples of spreads during AH.
To learn about the other order types and how to implement them into your trading or investing strategy, check out our investing and day trading courses.
A major benefit of PM and AH trading is that if a company has a positive news release, investors can go straight to the market and purchase the shares (assuming the news release was also during PM or AH trading hours).
This allows for an early entry into the stock before everyone hears about the news, starts buying the stock and drives the price up.
When a company experiences a positive news release during PM and AH, the volume for the stocks tends to be high enough that the spreads are much closer. Below are some examples of stocks with heavy AH trade volumes.
The most important takeaway from this section is understanding that the market has 3 separate sessions of operation:
Each broker may have slightly different PM and AH times, so make sure to check with your individual broker before trading.
Trading PM and AH should be done with extra caution, and this kind of trading is not recommended for beginners. These trading sessions perform as a true auction where orders are only between buyers and sellers; there is no middleman (market makers).
This leads to much smaller trade volumes, much higher spreads and a lot more volatility in the market, which equals much higher risk.
Always exercise extra caution when trading outside main market hours!
The YouTube channel Brandon Beavis has a great video explaining some of the previously concepts. Click on the video below to watch it. We do not take any credit for their work or claim the video to be ours. Please like, follow, and share their video to support their channel!
Don’t forget to check out the Materials Tab for helpful extra resources and definitions of Key Terms!
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